Articles in Category: Ferrous Metals

A war over steel imports has broken out yet again between the world’s two largest producer nations: China & India.

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The Steel Authority of India Ltd. and JSW Steel & Essar Steel India filed a complaint with India’s Directorate General of Anti-Dumping and Allied Duties, seeking an anti-dumping investigation as well as the imposition of tariffs on steel imports from six countries. Soon thereafter, the DGAD said it had prima facie evidence of dumping of steel originating from China, Japan, Russia, Korea, Brazil  and Indonesia.

Chinese Production vs. Indian Production

China is the world’s biggest steel producer, accounting for around 822 million tons a year. Driven largely by a fast track economy in the past quarter century, China’s steel output has grown by more than 12 times it’s size in the ’80s. By comparison, the EU’s output fell by 12% while U.S. output has remained flat. Of late, China has found itself in the midst of dumping controversies involving many countries it sends exports to, including the U.S., the European Union and Australia.

Steel mills Molten iron smelting furnace production line

Chinese steel production is the target of India’s anti-dumping probe. Source: Adobe Stock/zjk.

The Indian probe’s purpose is to establish the “existence, degree and effect of dumping” by the six nations. If found to be true, it will then recommend a minimum amount of anti-dumping duties. The probe covers hot-rolled flat products of alloy or non-alloy steel in coils, as well as hot-rolled flat products of alloy or non-alloy steel not in coils. Most of these products are used in the the automotive, oil and gas line pipes/exploration, cold-rolling, pipe and tube manufacturing industries.

Trade between China and India has been growing but individually, the two are polar opposites so far as global exports are concerned. India’s exports account for just 1.7% of world trade, compared with nearly 12% for China’s. China exported 112 million metric tons of steel in 2015, which was 25% more than India’s total production of steel. India produced 92 mmt of steel in its 2014-15 fiscal year, while it imported over 9.32 mmt of steel, of which, an estimated 30% came from China.

Meanwhile, on the other side of the globe in Belgium, international steel producing countries, too, called for urgent action to curb overproduction.

A joint statement from the U.S., Canada, the E.U., Japan, Mexico, South Korea, Switzerland and Turkey, called calls for “ongoing international dialogue” to remove “market-distorting policies.”

But China rejected suggestions that it subsidized its loss-making steel companies.

India has often used anti-dumping duties and also imposed safeguard duties due to such import surges.

A few days ago, the Indian government extended the safeguard duty on steel imports until March 2018, after having first imposed them in September 2015. There will be no safeguard duties on steel imported at or above the minimum import price (MIP) stipulated by the government.

Anti-Dumping or Countervailing Duties?

Both, anti-dumping and countervailing duties try to rectify the same issue: low-priced imports. But the difference between the two is the real cause of the low price.

Anti-dumping duties are used to tackle “dumping,” a legal definition for imports whose price is lower than their production cost. An exporter sets steel prices lower than production costs and floods other markets with such steel products. If a Chinese producer spends $120 per mt to make cold-rolled steel, and then sells it in the Indian market for $90 mt, while his Indian counterparts are selling their produce for $110, then these imports are based on a predatory pricing model that is either indirectly subsidized in the originating country, or takes advantage of a lower-valued currency and production costs back home.

On the other hand, countervailing duties seek to counter low prices that are an outcome of direct subsidies. The Chinese government, like some others, offers subsidies on exports in the form of tax breaks. As a result, exporters can offer lower prices than domestic producers. Countervailing duties level the playing field by negating the advantage of direct government sponsorship by increasing import tariffs to level the playing field.

Such duties are allowed by the World Trade Organization under the General Agreement on Trade and Tariffs (GATT) but only if dumping is established. Anti-dumping duties have to be removed if the margin between the domestic price and imported price goes below 2%, or when the imports of product from a country account for less than 3% of total imports of the product.

Also, the WTO says safeguard and anti-dumping duties cannot be country specific. So, if India or the U.S. imposes duties on imports from China, the latter can also impose duties on imports from those two nations.

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This is what China is now pointing out to India. A few days ago, the world’s top steel maker asked India not to resort to “trade protection measures” and to “strictly follow” WTO rules while investigating cases of dumping by Chinese iron and steel exporters. Steel overcapacity is a worldwide problem which requires a joint effort from all countries, an unnamed Chinese official was quoted as saying by the official Xinhua news agency.

Steel imports into the U.S. were up in March while a glut of oil and gasoline production in Asia threatens the recent price rally.

Gasoline Glut In Asia

A rebound in oil prices this year from 12-year lows is in danger of coming to a crashing halt soon.

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The main engine of global demand growth for the past several years, Asian demand, starts to sputter amid signs of a gasoline glut in both Japan and China.

Steel Imports Into the U.S. Up in March

Based on preliminary Census Bureau data, the American Iron and Steel Institute reported recently that the U.S. imported a total of 2.5 million net tons (nt) of steel in March 2016, including 2.097 million nt of finished steel (up 12.9% and down 0.1%, respectively, vs. February final data).

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On the year-to-date, through three months of 2016 total and finished steel imports are 7.49 million and 6.424 million nt, down 36% and 34% respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 30 and 25.7 million nt, down 23% and 18% respectively vs. 2015. Finished steel import market share was an estimated 24% in March and is estimated at 25% YTD.

Andrew Lane, source: Morningstar.

Andrew Lane. Source: Morningstar.

MetalMiner Editor Jeff Yoders recently had a chance to discuss the broad commodities rally, individual metals markets and other related news with Morningstar Senior Equity Research Analyst Andrew Lane, (here he is talking about Alcoa, Inc. on CNBC). The Chicago-based, independent investment research firm recently released its Basic Materials Observer.

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Morningstar warns that  basic materials stocks look somewhat overvalued, with the average company under its coverage trading at a 12% premium to their analysts’ fair value estimate. That’s not to say that Morningstar’s analysts don’t see pockets of significantly undervalued companies in the sector.  Key takeaways:

  • Despite the recent rally in some commodity prices, Morningstar analysts’ outlook for commodities related to Chinese fixed-asset investment remains negative.
  • Price outlooks are relatively better for commodities related to the Chinese consumer. However, Morningstar analysts would preach caution on the recent safe-haven gold rally.
  • With faltering Chinese growth likely to wreak havoc on investment-oriented commodities, the analysts look to U.S. housing as a pocket of opportunity. Morningstar analysts believe housing starts will be driven higher during 2016.

In discussing the ongoing steel overcapacity issue, Lane said that any real recovery in demand in the Chinese economy is still far away, hindering the demand outlook from what was once the main driver for worldwide production.

“Any real recovery can’t come until past 2020 which is as far our long-term outlooks go,” he said. “The funding for these loss-making facilities, it has to run out at some time. It remains to be seen how far the local governments in China can kick the can down the road by keeping their local and provincial capacity open with access to this (loan) capital. It’s a game that can’t go on forever but… we tend to think that they can maintain current production levels for a lot longer than most people give them credit for.” Read more

Even as world steel powers gathered in Brussels this week to discuss the massive overcapacity problem and exchange accusations, particularly between the U.S. and China, steel prices continued to rise globally.

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In China, that means zombie steel mills are rising from the dead. While Beijing has engineered some steel capacity cuts, its efforts are being undermined by a rise in domestic steel prices that has seen mills ramp up output. Even those zombies, which had stopped production but were never officially closed down. They have clawed their way back from the grave and are producing steel again. Such is life in the people’s republic.

The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.

The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.

Steel wasn’t the only metal threatened by imports, though, this week. The United Steelworkers filed a safeguard action against imports of aluminum, mostly from China. If found to be in violation of section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum (read, ingots welded together to form “semi-finished products”).

Hey, maybe the zombie mills are just “semi-finished,” too! That is, shut down but never really out of business. Here in the U.S., when a company is in trouble it files for bankruptcy protection. That’s exactly what once high-flying renewable energy company SunEdison, a major supplier of solar power, did this week.

In the U.K., Tata Steel finally sold some of the assets of its loss-making U.K. business. Even if you’re not in trouble, job losses are simply a part of business as Allegheny Technologies, Inc. showed 250 of its salaried employees this week.

There’s simply no mechanisms to deal with losses that way for these Chinese zombie mills. Yet, China claims to be committed to changing to a market-based economy. That’s why it’s so ridiculous that the World Trade Organization and other international trade authorities are even considering market-based economy status for the evolving Chinese economy.

Russia said it will increase oil production without a deal with Saudi Arabia and other Organization of Petroleum Exporting Countries members and the U.K. has reluctantly agreed to subsidize a deal to help sell Tata Steel‘s on-the-block U.K. mills.

Russia Says It’ll Increase Oil Production

Russia said on Wednesday it was prepared to push oil production to historic highs, just days after a global deal to freeze output levels collapsed and Saudi Arabia threatened to flood markets with more crude.

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Venezuela predicted prices could crash in the next few weeks if producers failed to resume dialogue and urged that non-OPEC participants be observers at a June OPEC meeting, as the specter of oversupply loomed once more.

Cameron Government Supports Nationalizing U.K. Steel Mills

Great Britain could part-nationalize Tata Steel‘s remaining U.K. interests by taking a 25% equity stake, as part of a support package worth hundreds of millions of pounds designed to attract a buyer and save at least 10,000 jobs.

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The Conservative Cameron government, which privatized the steel and other industries under former Prime Minister Margaret Thatcher, is seen as being anxious to avoid an imminent closure of the U.K.’s biggest steel works at Port Talbot in South Wales just before a referendum on European Union membership in case of a protest vote.

Allegheny Technologies, Inc. recently announced the elimination of more then 250 salaried employees in its Flat Rolled Products operations. ATI’s salaried workforce in the FRP segment will be reduced by approximately one-third by the end of June.

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ATI will record a $9 million severance charge in its first quarter 2016 results. Rich Harshman — ATI’s Chairman, President and CEO — said the job cuts were “another step in our journey to return the FRP business to profitability as quickly as possible, and to execute our strategy for sustainable, long-term, profitable growth.”

Flat-Rolled Future

ATI expects the FRP business segment will be modestly profitable by the second half of 2016. The workforce reduction will generate an annualized cost savings benefit of over $30 million beginning in the third quarter of 2016.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI’s Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI’s FRP business segment was to blame for ATI’s staggering losses last year. Operating losses for  the division were $242 million for 2015, as we reported in February. Read more

A former success story in U.S. renewable energy has filed for chapter 11 even as China’s “zombie mills” fire up steel production again.

SunEdison Files for Bankruptcy

U.S. solar energy company SunEdison Inc. filed for Chapter 11 bankruptcy protection on Thursday, becoming one of the largest non-financial companies to do so in the past 10 years.

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Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt.

In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30.

China’s Zombie Mills Fire Up Production

The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China.

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While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected.

While one high level meeting was going on in Doha, Qatar — in an effort to control the fate of the oil price — another was going on in Brussels, Belgium, seeking to decide the fate of the steel market.

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Representatives from around 30 countries including China, Japan, Germany, India, the U.K. and the U.S. met with European Union, World Trade Organization, Organization for Economic Cooperation and Development and World Steel Association representatives met in the Belgian capital in a bid to come up with a package of measures that will curb the huge overcapacity at the heart of the steel crisis, the London Telegraph reports.

Chinese Production Cuts Demanded

The E.U. and U.S. would like to see China agree to cut production and fast but China has said, “Blaming other countries is always an easy, sure-fire way for politicians to whip up a storm over domestic economic woes, but finger-pointing and protectionism are counter-productive.”

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can’t find a buyer. Source: Adobe Stock/Petert2

China even called such allegations a “lame and lazy excuse for protectionism.”

China Cries Protectionism

One could easily have some sympathy for the Chinese position, at least as far as the E.U. is concerned. Environmental legislation-inspired energy costs have been the dead weight dragging down all European steel producers, none more so than the U.K. which is likely to see the last major primary production facility close in coming months, leaving just one electric arc furnace plant.

Officially, the OECD said the meeting will “discuss how governments can facilitate market-driven industry restructuring and … agree on steps to reduce competition-distorting policies.”

According to OECD analysis, overcapacity in steel was above 70 million metric tons at the end of 2015, and new plants are set to add another 47 mmt by 2018. In spite of promises of good intent made in the past, China has continued to increase production. Output in March rose 2.9% over the same month last year hitting 70.76 mmt, an annual run rate of nearly 850 mmt.

On the back of this, iron ore has risen to a high for the year, up 36% since the turn of the year. China, though, is aware of the problem and while they will refuse to be bullied into closing plants they are desperate to implement a plan to cut large chunks of older and less-efficient, more-polluting plants in time.

Importer Nations Can’t Wait for Cuts

The “in time” will not be fast enough for many, though. Beijing is talking of two to three years, fearful of the impact mass layoffs could have on social unrest there. Figures of five to six million job losses are substantial, even in a population as large as China’s, particularly as they would be disproportionately concentrated in a few coal-mining and steel-producing states.

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So, the Brussels summit will have little more positive outcome in the short term than the complete waste of time that was OPEC’s summit in Doha. However, rest assured that won’t stop politicians coming away claiming all kinds of goals met and agreements made. The proof will be whether global steel production is any lower as a result by the end of this year as it is today. Most projections are for it to continue rising.

Steel scrap prices have been on a rebound this year, along with iron ore and many other commodities, scrap prices have picked up in major market Turkey.

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The Steel Index (TSI) put this down to stronger demand from Turkish mills and a squeeze on supplies. Low steel prices have resulted in low scrap prices, particularly in major exporter the U.S. The resulting lack of supply has created a tighter market. At least for awhile.

Source: TSI

Source: The Steel Index.

In Asia, prices have picked up in, particularly in Taiwan where imports of HMS #1&2 80:20 increased $23 a metric ton to $247 per mt at Taiwanese ports last week.

India Not Buying Increases

In India, TSI’s containerized shredded index for Indian imports rose $25/mt to finish the week at $263/mt at the CFR Nhava Sheva port. Indian buyers, though, have not committed to the market in a big way, drawing on domestic stocks in part because they do not see the price increases as sustainable.

Source: TSI

Source: TSI

U.S. prices, though, have been more lackluster showing just a small $2/mt uptick according to the TSI, more a reflection of increased west coast exports and lack of steel scrap arisings than any strength in the market.

Iron Ore Competition

Low iron ore prices, though, have largely replaced scrap demand in China, decimating imports of ferrous scrap.

Source WSJ

Source: The Wall Street Journal.

Scrap inventory has built up at scrap yards in the U.S. and Europe as processors have faced weak markets. There appears little shortage of unprocessed metal, given that this could come through the system if demand and or prices picked up any significant strength in the market could ease in Q2.

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The steady decline in volumes is forcing consolidation in the U.S. market and some have voiced concerns about the future of domestic recycling. With electric arc furnaces steelmaking such a dominant production route in the U.S., the supply market will, in part, be supported by vertical integration from steelmakers but recycling is a fragmented business and further mergers, rationalization and consolidation is probably inevitable as export prospects remain subdued, not just for months, but probably the next few years. Scrap prices have moved sharply in the US and remain highly correlated to HRC prices which are also now on the rise. Whether this will spur further scrap metal to come on to the market remains to be seen, in theory there is pent up supply waiting for better pricing to attract its collection and processing, some smaller scrap dealers have gone out of business but the industry has plenty of capacity to produce more, it just needs the trend of firming prices to continue, for many it can’t come soon enough.

Sale will move the U.K.-based, loss-making long products division. After the sale of all U.K.-based assets, Tata Steel will operate only the Ijmuiden (Netherlands) unit.

Keeping in line with its earlier decision to sell its poorly performing business in the United Kingdom, India’s Tata Steel has sold its long products business assets in Europe to investment firm Greybull Capital. The sale amount, though not disclosed, was said to be “nominal.”

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The sale marks the start of the end of Tata Steel’s foray into the U.K. that started in 2007 with its acquisition of Corus. Greybull Capital will bring in a package of £400 million provided by a combination of banks and its shareholders, to fund working capital and future investments in the business.

The deal includes the Scunthorpe steel plant, mills in Teesside and northern France, an engineering workshop in Workington, a design consultancy in York, a bulk terminal, and associated distribution facilities.

Meanwhile, ratings agency Moody’s Investors Service said the action by Tata Steel U.K., the signing of the sale agreement, was “credit positive” for its parent, Tata Steel UK Holdings, and ultimate parent, Tata Steel.

“However, the agreement will not immediately affect our ratings for Tata Steel and TSUK Holdings, based on the information so far on the amount of liabilities and debt to be transferred,” Moodys said.

With the sale of the long products business to Greybull, the balance of its U.K. business comprises primarily all of its operations at Port Talbot, which manufacture slabs, hot-rolled coil, cold-rolled coil and galvanized coil.

The sale of the Scunthorpe-based division to Greybull Capital was expected to cut losses at Tata Steel Europe (TSE). Because the long-products division was running at sub-optimal capacity (three million metric tons per year versus full capacity of 4.5 mt per year) due to low demand and losses. The total capacity of TSE is 17.4 mt per year.

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The negative part, said Moody’s, was that Tata Steel would continue to carry debt and pension liabilities from the unit. Employees will remain under the £14-billion British Steel Pension Scheme, of which TSE is the sponsor.